Panama: Regulation for Non-profit Organizations

By Juan Raúl Vega C. / Roberto Harrington, Alfaro, Ferrer & Ramírez (AFRA)

Executive Decree No. 62 of March 30, 2017 was published in the Official Gazette No. 28,249-A of March 31, 2017. This Executive Decree regulates Non-profit association and foundations with private interest whose legal status is recognized by the Ministry of Government, and dictates other provisions (the “Regulation”)

Given its novelty, we do not have further experience with this Regulation. We would not be surprised if it is questioned because it is certainly invasive in terms of NPOs, even against those that do not handle public funds.

The purpose of the Regulation is to (i) regulate all matters relative to the constitution of Non-Profit Organizations ("NPOs"), amendments to their Articles of Incorporation and their dissolution, (ii) to establish certain obligations to fulfill regarding their operation, and (iii) grant oversight faculties to a new department created within the Ministry of Government and Justice called the "Department of Oversight, Monitoring and Evaluation of NPOs" (the "Department").

I. Special Obligations

1. According to the Regulation, a registry (the "Registry") is established in which all the NPOs must be registered. In order to be registered, it is necessary to submit a written request to the Legal Affairs Department of the Ministry of Government, which must be accompanied by a simple copy of the articles of incorporation registered in the Public Registry of Panama. The Regulation does not establish a term within which the Register must be carried out, but we consider it convenient to submit the documentation to the Ministry of Government promptly (once they request it, it must proceed in 30 days).

2. To have a book of records, keep an up-to-date record of its members as well as books and accounting records, which may be requested at any time by the Ministry of Government.

3. Starting from 2018, NPOs that have authorization from the Tax Administration Office to receive tax-free donations, receive public funds or transfer funds abroad, must submit a report within the first 3 months of the year informing any change in the address, any change in the Board of Directors and file a financial statement (the "Annual Report"). Failure to comply with this obligation for 2 consecutive years will result in the suspension of legal status until they are filed.

II. Oversight

1. In case any NPOs receive funds from Foreign Governments, National Organisms or other sources channeled through public institutions, will be considered of public nature and subject to follow-up actions by the Ministry of Government, inspection of the Comptroller of the Republic of Panamá and other relevant authorities, as to their origin, management, destination and financing. These funds must be deposited in bank accounts in Panama and the movements may be supervised by the Comptroller of the Republic. Funds obtained from self-management and from other sources are not subject to these management rules.

2. The Department has extensive oversight faculties, including:

A. Verify the recognition and registration of Legal entities.

B. Monitor, based on the risk report, the legal status of all NPOs in terms of administrative requirements and procedures, with the consequent observations, evaluations and recommendations in order to ensure the proper conduct of activities and the purposes and objectives for which they were created.

C. Require and verify records of any funds received, generated or transferred by the NPO.

D. Apply to the NPOs the oversight, monitoring and evaluation measures required to comply with the Regulation.

E. Require documentation that is considered convenient and necessary for the oversight, monitoring and evaluation of NPOs

F. Examine the books, minutes, documents and others corresponding to the administration, financial management and operation of NPOs.

G. To request from the dignitaries, representatives or those responsible of the NPO the necessary reports according to the result of the oversight carried out.

H. Temporarily suspend the legal status of NPOs in the following cases:

i. NPOs that are obliged to submit the Annual Reports and fail to do so.
ii. NPOs that engage in activities contrary to their non-profit nature.
iii. NPOs that carry out actions not permitted by this Regulation.

I. Conduct visits to NPOs to carry out oversight functions.

J. Request NPOs’ Representatives to submit any documentation or provide information that is required to justify, clarify, or amend deficiencies related to their legal status.